Chapter 2 Accounting for a service business

net worth

Another term for owner's equity, the amount by which the business assets exceed the business liabilities.

fiscal year

Any accounting period of 12 months' duration.

business entity

An individual, association, or organization that engages in economic activities and controls specific economic resources.

accounts payable

An unwritten promise to pay a supplier for assets purchased or services received.

statement of financial position

Another name for the balance sheet, which reports assets, liabilities and owner's equity on a specific date.

operating statement

Another name for the income statement, which reports the profitability of business operations for a specific period of time.

profit and loss statement

Another name for the income statement, which reports the profitability of business operations for a specific period of time.

capital

Another term for owner's equity, the amount by which the business assets exceed the business liabilities.

processing

Recognizing the effect of transactions on the assets, liabilities, owner's equity, revenues, and expenses of a business.

account title

provides a description of the particular type of asset, liability,owner's equity revenue, or expense.

statement of owner's equity

reports beginning capital plus net income less withdrawals to compute ending capital.

accounts receivable

An amount owed to a business by its customers as a result of the sale of goods or services.

business transaction

An economic event that has a direct impact on the business.

Asset

An item that is owned by a business and will provide future benefits

accounting equation

The accounting equation consists of the three basic accounting elements: Assets= liabilities+owner's Equity.

revenues

The amount a business charges customers for products sold or services performed.

owner's equity

The amount by which the business assets exceed the business liabilities.

notes payable

A formal written promise to pay a supplier or lender a specified sum of money at a definite future time.

liquidity

A measure of the ease with which an asset will be converted to cash.

drawing

Withdrawals that reduce owner's equity, as a result of the owner taking cash or other assets out of the business for personal use.

account

a separate record used to summarize changes in each asset, liability, and owner's equity of a business

input

business transactions provide the necessary input for the accounting information system.

liability

something owed to another business entity

withdrawals

Reduce owner's equity as a result of the owner taking cash or other assets out of the business for personal use.

balance sheet

Reports assets, liabilities, and owner's equity on a specific date. It is called a balance sheet because it confirms that the accounting equation is in balance.

income statement

Reports the profitability of business operations for a specific period of time.

net loss

The excess of total expenses over total revenues for the period.

net income

The excess of total revenues over total expenses for the period.

output

The financial statements are the output of the accounting information system.

accounting period concept

The concept that income determination can be made on a periodic basis.

business entity concept

The concept that nonbusiness assets and liabilities are not included in the business entity's accounting records

expenses

The decrease in assets (or increase in liabilities) as a result of efforts to produce revenues.